Strategic Responses Towards Socially Concerned Customers

Abstract

Social concerns play an important role in the recent economic literature. We model customers that obtain an aversion to firms’ profits. We discuss this effect of customers’ concern on equilibrium outcomes in monopoly and oligopoly markets with differentiated goods. We find that in monopoly markets and markets with Cournot or Bertrand competition, customers’ social concern leads to lower equilibrium prices but has no effect on optimal quantities. When considering out of equilibrium pricing, our model can account for the preference for fair-trade products.

Keywords: Bertrand competition, Cournot competition, differentiated goods, disutility, economic implications, monopoly, non-differentiated goods, social concern, oligopoly theory, utility.